Enlightened Economics

Economics for an Enlightened Age

• Dubious Positive Biases in Revised U.S. Economic Statistics

Why do most of the methodologically revised U.S. economic statistics tend to create a picture of a more positive looking economy? Do these revised statistics really give a better—or illusory—understanding of economic activity? And is it coincidental that the benefits flowing from these more positive looking statistics largely accrue to powerful elites who also have the muscle to influence the statistical methodologies? Now those who should be investigating and informing us of these concerns, our economists and media, fail to do so.

We see this ‘positive bias’ appearing in the most important economic statistics, including unemployment rates, payroll numbers, the consumer price index (CPI), savings rates, and gross domestic product (GDP).

Considering the unemployment rates and payroll numbers, we find that the Bureau of Labor Statistics (BLS) has implemented many changes that have resulted in lower unemployment rates and higher payroll numbers.

One particular change in 1994 to the unemployment rate was most significant. At that time the BLS decided to exclude the long-term (over one-year) unemployed discouraged workers from measurement. The chart below, from ShadowStats, shows that revised rate, now referred to as the Official U3 rate, as the red line.

The unemployment rate including these long-term unemployed discouraged persons is the ShadowStats blue line. The broadest government unemployment rate U6 is the gray line, which ShadowStats says, includes “short-term discouraged and other marginally attached workers as well as those forced to work part-time because they cannot find full-time employment.”

Using March 2014 unemployment data, notice the huge difference in unemployment rates between the pre 1994 methodology, which ShadowStats estimates at 23.2%, and the much-publicized Official U3 rate of just 6.7% and U6 at 12.7%!

sgs-emp

With reference to the BLS payrolls data, John Williams, ShadowStats founder, has regularly spotted “spurious revisions used to spike payroll employment levels.” He said of the March 2014 payroll report, that, “[The] increase of 192,000 was bloated heavily by concealed and constantly shifting seasonal adjustments… [that the] numbers remain of horrendous quality… generally not comparable with earlier reporting.”

Methodological changes to the CPI are also worrisome. Some non-government consumer price indices show exactly how much the government CPI has understated inflation that’s relevant to most people’s everyday experience. One such index is Guild Investment Management’s (GIM), Guild Basic Needs Index (GBNI). GIM says that because the BLS, “periodically alters its [CPI] content, making adjustments to the weighting of the components, and smoothing seasonal patterns. [That,] such tinkering with data… usually results in an understatement of the inflation rate and creates an unreliable, misleading cost of living index.”

The GBNI includes food, clothing, shelter and energy, covering 50-80% of most people’s expenditures. From the chart below see how over the five years to January 31, 2014, the annual increase in the GBNI was 4.7%, versus 2.1% for the CPI.

ShadowStats has re-worked the CPI as the BLS measured it with a fixed basket of goods in 1990 (see below), and in 1980 (not shown). Using the 1990 measure annual inflation in February 2014 was running at about 5%, blue line, versus under 2%, red line, for the Official CPI-U.

Changes to the personal savings rate methodology are of concern too. Negative personal savings rates in the past decade became positive. For instance, the personal savings rate (as a percentage of disposable personal income) in 2006 and 2007 was about -2% but has become +3% after revisions. Methodological changes in personal incomes and certain pension benefits, etc., had the effect of enhancing personal savings rates.

Regarding GDP, we see it has benefited from arguably bureaucratically lowered inflation rates. To arrive at ‘real’ U.S. GDP, the Bureau of Economic Analysis (BEA) reduces nominal (current prices) GDP by BEA’s own inflation measure. According to Mr. Williams, this measure shares many similarities to the CPI. One example is that it includes “quality-adjusted price indexes to deflate goods and services.” Hence, if a new computer has the same price as one several years ago but is many times more powerful, its price would now be deemed much, much lower, thereby lowering BEA’s price index and thus increasing real GDP.

To see exactly how these methodologies upwardly bias GDP, consider that BEA reported real GDP for 2013 at 1.9%. However, using the SGS-Alternate GDP that eliminates, as ShadowStats says, some of the “distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting,” real 2013 GDP would be about 4% lower and negative at around -2%!

These questionable brighter-looking statistics could be creating the illusion of a better economy. Coincidentally, such a possibly falsified, better-looking economy, greatly benefits some key political and financial elites who just happen to have disproportionate power to influence government statistical methods.

ShadowStats gives examples of the Johnson, Nixon, Carter, Reagan, Bush (first) and Clinton administrations engaging in acts to alter various economic statistics so as to put their respective administrations in a brighter light.

And the economic elite benefiting most from these more positive looking statistics pumping up the bond and stock markets are the ultra rich. Moreover, it is they who have an out sized influence on legislators and government policies and perhaps the most interest in adding gloss to the statistics.

Regrettably, those who should be critiquing and providing insight for the public about the meaning and consequences of the methodological changes to the statistics, our beloved economists, are missing-in-action. Economists, believing they are quasi-physicists of the economics realm, should be ashamed at their apparent near total public acquiescence to government statistical methods and methodological changes.

Sadly, the financial media is just as irresponsible too, parroting the statistical information spoon-fed to them by government. This is a situation suited to a dictatorship rather than an enlightened democracy.

When methodological changes to government economic statistics nearly always create a picture of a more positive economic reality, we have to doubt their integrity—especially when particularly powerful political and financial elites benefit the most from them. Alas, economists and financial journalists studiously avoid publicly critiquing the changing statistical methodologies. They treat government statistics as if they come down from God and written in stone. We deserve better in this enlightened age.

So, are these dubious, positively biased economic statistics providing improved insight into economic reality–or are they created to proffer the impression of a healthy economy?

© Ron Robins 2014

April 9, 2014 Posted by | Economic Measurement, Economics, Statistics, Unethical Statistics | , , , , , , , , , , , , , , , | 1 Comment

• U.S. Health Care: Resolving the Quagmire

The following excerpts are from chapter one of a book in progress by Ron Robins, tentatively titled, Resolving America’s Economic Quagmire… individuals gaining inner fulfillment is the key*

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“These [Social Security, Medicare, and Medicaid] and other projected expenditures… have produced, not a fiscal cliff, but a fiscal abyss.”

Professor Laurence J. Kotlikoff, Boston University.

Overview (Excerpt)
“Professor Kotlikoff calculates this fiscal abyss of the U.S. Federal Government as an astounding unfunded liability of $205 trillion. It equals a current debt of about $665,000 for every living American adult and child. And most of this sum pertains to health care. The health care costs quagmire poses a financial deathblow to the U.S. economy and its citizens. To avert this calamity, America’s health care system will be revamped.

Notwithstanding Obamacare, one way will be to re-organize the health care system according to well-studied methodologies that show huge potential cost savings. While another way—garnering increasing attention—is by utilizing scientifically validated disease prevention interventions such as the Transcendental Meditation (TM) program. Also, many political leaders, economists and others, believe there will need to be substantial reductions in health care benefits as well.

Interestingly, by deploying the known methodologies and interventions inferred to above and written about below, it might not be necessary to reduce benefits yet still be able to cut health care costs a stunning 50-80 per cent!”

Major health care cost drivers. Reducing their cost through health system reform and introduction of the Transcendental Meditation disease prevention program (Excerpt)
“The major health care cost drivers are:

  • The increasing incidence of chronic disease in an aging population
  • Relatively fewer workers to pay for increasing costs
  • Exceptionally high professional fees relative to other developed countries
  • Huge oversupply of services, equipment
  • Administration costs and fraud 

Now we look at these issues one by one, and where appropriate, determine the role that individual TM practice can play in reducing their costs.”

The increasing incidence of chronic disease in an aging population (Excerpt)
“Over half of Americans have chronic diseases. Yet, despite significant improvements in treatments for chronic diseases, their incidence and related financial costs continue rising dramatically.

Actual costs of  America’s seven most common chronic diseases—cancer, diabetes, hypertension, stroke, heart disease, pulmonary conditions and mental disorders—have been estimated at $1.3 trillion annually by Ross DeVol and colleagues, or about 10 per cent of gross domestic product (GDP). Their unique and original study quantified almost all related costs to employers, governments, and to the U.S economy. They say those costs could reach $4.2 trillion by 2023.

Numerous researchers cite the growing incidence of chronic disease as mostly due to aging. However, many in the medical field also believe that more important than aging are the unhealthy lifestyles, diets, and behaviors of most Americans. And this is another area where the TM practice can be highly beneficial. Aside from its well-documented physical health benefits, TM creates an ‘inner fulfillment and self-sufficiency’ that alleviates the desire for the kind of instant gratification (with bad lifestyles, diets, etc.) that cause much chronic disease.

The first major study demonstrating the effectiveness of the TM practice in reducing chronic disease (and overall illness) was by Dr. David Orme-Johnson in 1987. Using Blue Cross/Blue Shield data, Dr. Johnson found an average 50% reduction in medical utilization in all 16 major disease categories studied among subjects practicing TM as compared to matched controls.

As the elderly are responsible disproportionately for health care costs, some researchers suggest they be particularly encouraged to practice TM. One leading researcher on health care costs, Dr. Robert Herron, wrote about this in the Huffington Post on July 13, 2012. Dr. Herron remarked–on a study he did–that, ‘In the Medicare population… the highest spending 25 percent of seniors accounted for 85 percent of total expenses’ and that there was ‘a 28 percent reduction in doctors’ bills over five years from baseline for persistent high-cost people who practiced the TM technique.’”

Relatively fewer workers to pay for increasing health care costs (Excerpt)
“Between 2012 to 2050 the United Nations predicts the U.S. labor force having far fewer workers (aged 15 to 64 years) for every American over 65 years—down from 5 to 3 workers over that period.”

Exceptionally high professional fees compared to other developed countries (Excerpt)
“The following data is extracted from the International Federation of Health Plans 2012 Comparative Price Report, a 100-member group of companies in 30 countries which includes a huge group of international health providers.”

2012: Medical service provided

USA Average

Canada

Netherlands

France

US$

US$

US$

US$

Scanning & Imaging CT Scan, Abdomen

     630

    124

      267

      183

MRI

  1,121

      -

      319

      363

Hospital Charges Per Day

  4,287

      -

      731

      853

Total Hospital & Physician Charges Coronary Artery Bypass

73,420

      -

 14,061

  22,844

Physician Fees Routine Office Visit

      95

      30

       -

        30

Normal Delivery

  3,096

    536

      292

      583

Huge oversupply of services, equipment (Excerpt)
“After reviewing the book, Tracking Medicine by John E. Wennberg, Arnold Relman on September 30, 2010, wrote, ‘[Wennberg] provides convincing evidence that oversupply of services throughout the U.S. adds greatly to the cost of care.’

Mr. Relman adds, ‘Wennberg [says] that since the medical care in the low-expenditure areas is not discernibly different in quality from that in the high-expenditure areas, a huge amount of money could be saved if all the country were to receive care the way it is provided in the low-expenditure areas. Wennberg estimates the savings would be about 30 to 40 percent.’”

Administration costs and fraud (Excerpt)
“American health care administrative costs (at roughly 7 per cent of all health care costs) are roughly double those of other developed countries, says Mark Pearson, Head, Health Division, of the OECD.  And the Federal Bureau of Investigation calculates that fraud costs the health care system about $80 billion annually—or about 3 per cent of all health care expenditures.”

Conclusion (Excerpt)
“Resolving the health care financial quagmire and avoiding its potential financial deathblow requires unparalleled changes to the health care system and Americans’ attitudes about their health and health care. It requires reforming the health care system by implementing known cost-effective modalities. It means introducing scientifically validated cost-saving disease prevention programs such as the TM technique that create an inner fulfillment and self-sufficiency that engenders improved personal psychology, healthier lifestyles, diets, and so forth.

Implementing these recommendations could cut U.S. health care costs by 50-80 per cent and improve health outcomes—all without reducing benefits!”

References
DeVol, R. at al. (2007). An Unhealthy America: The Economic Burden of Chronic Disease—Charting a New Course to Save Lives and Increase Productivity and Economic Growth, Milken Institute.
Federal Bureau of Investigation. Rooting out health care fraud is central to the well-being of both our citizens and the overall economy.
Herron, R. E. (2011). Changes in physician costs among high-cost transcendental mediation practitioners compared with high-cost non practitioners over 5 years,  American Journal of Health Promotion, 26(1), 56-60.
International Federation of Health Plans. (2012). Comparative Price Report, Variation in Medical and Hospital Prices by Country, United Kingdom.
Kotlikoff, L. J. (2012). The Hysterical Economy, VOX, December 16, 2012.
Kotlikoff, L. J. (2013). America in Worse Fiscal Shape than Detroit–Professor Laurence Kotlikoff, video interview with host Greg Hunter, USA Watchdog, December 4.
Orme-Johnson, D. (1987). Medical care utilization and the Transcendental Meditation program, Psychosomatic Medicine, 49(1), 493–507.
Pearson, M. (2009). Disparities in health expenditure across OECD countries: Why does the United States spend so much more than other countries? Written statement to the U.S. Senate Special Committee on Aging, September 30, P.7.
Relman, A. (2010). Health Care: The Disquieting Truth, The New York Review of Books, September 30.
United Nations. (2012). Department of Economic and Social Affairs, Population Division, Population Ageing and Development.
Wennberg, J. E. (2010). Tracking Medicine: A Researcher’s Quest to Understand Health Care, Oxford University Press, first edition.

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* In his prospective book, Resolving America’s Economic Quagmire… individuals gaining inner fulfillment is the key, Mr. Robins elucidates America’s hidden structural economic and social fault lines, their costs, and the economic benefits when resolved in the viable manner he prescribes. Furthermore, he determines that unresolved, these fault lines are a deathblow to America’s well-being.

Mr. Robins believes this financial deathblow might only be stopped by a fundamental shift in individual and collective consciousness: from that centered on seeking instant gratification and fulfillment outside of ourselves, to one focused on ‘internal fulfillment and mental balance.’ Mr. Robins argues that to create this change, the scientific literature suggests the Transcendental Meditation program could be an optimal solution.

Each chapter of his book examines an area of society—health, environment, family, crime, and so forth—in the light of known cost-effective modalities to improve conditions applicable to that area, as well as the associated merits of the TM program. Where possible, the dollar cost savings are shown in relation to their share of gross domestic product (GDP). Mr. Robins estimates his proposals may produce overall savings to GDP of over 40 per cent.

These cost savings will allow for the deployment of unparalleled new economic resources to greatly enhance Americans’ economic and social well-being.

© Ron Robins 2013

 

January 9, 2014 Posted by | Consciousness/Psychology, Economics | , , , , , , , , , , | 2 Comments

• Free Markets Need Higher Consciousness of Participants

By Ron Robins. Re-published October 20, 2012. First published March 3, 2011, in his weekly economics and finance column at alrroya.com

Governments are repeatedly asked to create laws and regulations to restrain ‘free’ markets. Of course the failure of free markets is not usually the markets themselves, but it is often the character, or lack of it, of the individuals participating in those markets.

Some individuals or companies having gained powerful monopolistic or oligopolistic market positions make unseemly profits by exploiting their market power. Sometimes using abhorrent methods, they drive out other market participants and/or create major obstacles to bar new market entrants. Looking to recent US experience concerning its financial markets is insightful. But what is revealed about the character of the market participants there is found to a lesser or greater degree in markets everywhere, and in every country.

The 2007-10 US financial crises epitomizes the fact that free markets often give rise to behaviours by individuals where, in the quest for financial gain, they lose any sense of moral direction or mental discipline. They display a disregard for ethics, honesty and integrity.

Confirming that widespread loss of ethics was at the heart of the US-based financial crises is a January 2011 report by the US government’s Financial Crisis Inquiry Commission. A central finding was that, “there was a systemic breakdown in accountability and ethics at all levels.” By ‘all levels,’ the Commission refers especially to US government regulatory oversight agencies as well as to the financial institutions.

However, for the roots of such poor ethics you need only look at the behaviour of students in the US school system. It seems that cheating by students has grown alarmingly in US schools, colleges and universities in recent decades. The highly respected US Educational Testing Service says that “while about 20 per cent of college students admitted to cheating in high school during the 1940s, today between 75 and 98 per cent of college students surveyed each year report having cheated in high school… [and the] profile of college students more likely to cheat: business or engineering majors [and] those whose future plans include business.”

Such high levels of cheating especially in US schools associated with business education appear to suggest the schools are relatively tolerant of it. Thus, the students probably infer that cheating might be worthwhile in their business careers too.

When so many people accept cheating and dishonesty as normal, problems can become huge in number. And in working out their problems Americans frequently resort to adversarial methods using lawyers to solve their issues. As a result, the US is the most litigious society on earth with one lawyer for every 265 people, compared to one lawyer for 400 to 1,400 people in most western European countries.

Thus, the full costs to US society of poor ethics and undisciplined behaviour are immense, though difficult to quantify. In particular, they include the costs of administering, policing, and complying with numberless laws and regulations at all levels that stifle economic and societal progress.

President Obama is presently campaigning to reduce the number of government regulations that impede business efficiency. Yet, while in office he has added an inordinate number of new laws and regulations, as much or more than any other US president. Consider the many, many thousands of new laws and regulations alone in the Dodd–Frank Wall Street Reform and Consumer Protection Act (to purportedly stop a repeat of the financial meltdown) and the Patient Protection and Affordable Care Act (a massive, complex restructuring of US healthcare).

However, there is a way in which the numberless laws and regulations can be reduced and thereby promotes freer markets and greater prosperity for all. It requires that the individual acts in ways that he or she knows are right and ethical first, and that the gain or loss of any action is secondary. Hence it is a matter of individual consciousness.

In most religious and cultural traditions, honesty, not wronging others, etc., are central tenets. Also, most religions proclaim that if you harm others, the harm comes back to you one away or another, thereby reducing the temptation of unethical activities. However, even people who are non-religious would generally subscribe to the ideas of honesty and not harming others. Such behavioural guideposts help form the foundation for any civilized society. Thus, individuals acting with a high degree of consciousness would make the need for many laws and regulations redundant.

Americans should realize that their systemic problems of debt, deficits, structural economic deficiencies and loss of world standing, are at least partly due to a breakdown in their own individual and collective consciousness. If the US wants to regain the promise that true free markets can offer—and with fewer laws and regulations—they must ensure that its citizens aim for a higher consciousness: one of ethics, honesty, integrity and mental discipline. Though the example depicted here is the US, similar circumstances exist in countries everywhere.

For the US and all countries, it is not that free markets are bad and must be regulated. Regulations can be much reduced or even eliminated, if the markets are populated with individuals of higher consciousness and disciplined minds. Then that ‘invisible hand’ which guides all free markets can work its magic in creating sustainable prosperity and economic equity for all.

Copyright alrroya.com

October 20, 2012 Posted by | Consciousness/Psychology, Spiritual | , , , , , , , | Leave a comment

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